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Pentagon budget cuts slam Boeing, raise stakes on tanker win

The Pentagon’s proposed defense budget hits air power harder than land or sea, which has large implications for The Boeing Co.

On Monday, Defense Secretary Robert Gates proposed budget cuts to myriad Pentagon programs, including the F-22 Raptor, C-17 Globemaster III and 2018 Bomber — all of which are lucrative to Boeing.

Boeing supports 182 C-17 Globemaster III airlifters for the Air Force. The Pentagon has proposed ending production at the end of 2010. (Photo by Gina Vanatter/Boeing)

“Gates’ cuts had a much bigger impact on American air power than they did on sea power or land power,” defense analyst Loren Thompson of the Lexington Institute said. “The reason Boeing got hit so hard is because it was such a good contractor to the Air Force.”

The F-35 Joint Strike Fighter program will get a boost — but that’s the one fighter that Boeing does not play a role in helping to build, Thompson said.

On many of the cut programs — the F-22 for instance — Boeing is not the prime contractor. But the revenue loss is still significant, said Scott Hamilton, aerospace consultant with Leeham Co.

The cuts are heavily skewed toward Boeing, he said.

“You take a look at all the programs that have been cut or reduced, and Boeing’s name is on a lot of them,” Hamilton said.

Boeing and the government are linked in

Last year, 46 percent of Boeing’s revenue came from U.S. government contracts, which are awarded primarily to Boeing’s Integrated Defense Systems division. IDS brought in $32 billion last year, whereas the company’s commercial airplanes division brought in $28 billion.

Sen. Patty Murray’s office estimates that more than 1,000 jobs in Washington state are associated with the F-22 program alone, spokeswoman Alex Glass said Tuesday.

“This is a program that has put a lot of money into the local economy,” Glass said.

Boeing had little to say about the proposed cuts. The company’s official line went like this: “We appreciate the work of Secretary Gates and his team to initiate a process that will examine the defense priorities for this nation. We will be studying Secretary Gates’ announcement for potential impact to Boeing. Meanwhile, the men and women of The Boeing Company will continue to perform at the highest possible level to deliver the best value to the warfighter and the taxpayer.”

Tanker becomes more important

What do the cuts really mean to Boeing? Much of that depends upon Congress, which controls the Pentagon’s purse strings.

It certainly means that the aerial refueling tanker program, worth about $35 billion, just became even more crucial to Boeing’s business, experts said.

“This is a big concern for Boeing,” Thompson said. “The tanker is one of very few places where Boeing might be able maintain a foothold in the military aircraft business over the long term.”

Hamilton agrees that tanker just jumped up a few notches in importance to Boeing, and added that splitting the tanker contract between Boeing and the Northrop/EADS team is seeing shifting political winds. He cited an interview between KIRO-TV and U.S. Rep. Norm Dicks, where Dicks said he could live with a split contract.

Hamilton says to watch for Murray’s reaction next.

Defense Secretary Gates said Monday that the Air Force tanker competition would restart this summer.

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